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Judgment
K. Kannun, J.
I. Genesis of action:
The defendants in a Suit filed at the instance of a partner of a firm seeking for dissolution, moved an Application u/s 8 of the Arbitration and
Conciliation Act of 1996 seeking for a reference to arbitration on the basis that the subject matter of Suit was governed by an Arbitration
Agreement. The Application was dismissed and the aggrieved parties are the Civil Revision Petitioners before this Court.
II. Core reason for dismissal of the Petition:
While dismissing the Application, the Court below took note of the averments in the Plaint regarding the so called mismanagement and fraud
practiced by the defendants and interpreted them to mean that disputes arising out of such a situation would not be governed by the relevant clause
in the partnership deed though provided with an arbitration clause.
III. The relevant clause for consideration:
The partnership deed provided as follows:
Any disputes arising out of this partnership or as to interpretations operation or enforcement of terms of this partnership between the parties or
their legal representatives shall be referred to the arbitration of a person appointed by the partners whose decision shall be final and binding on all
partners and their legal representative.
IV. Principal grounds of challenge:
It is contended by the counsel for the revision petitioners that the interpretation given by the Court below was clearly wrong and that any issue
relating to winding up and the entitlement of any party to resort to the provisions of Section 44 are squarely governed within the term disputes and
amenable to arbitration by the operation of the clause referred to above.
V. Reference to arbitration: Factors against, as urged in C.R.P.:
The learned Senior Counsel for the respondent has difficulties to support the line of reasoning adopted by the Court below but sets out his
objections as follows:
(a) The reference to arbitration will be an exercise in futility since it will be barred by limitation.
(b) The original or a duly certified copy of arbitration agreement has not been filed along with the Petition u/s 8 and hence the Petition is liable for
rejection.
VI. Examination of the issue of limitation:
The Suit had been instituted in the year 1999 and even before filing the written statement, the defendants had filed an Application u/s 8 with a
copy of the partnership deed containing the arbitration clause. On 13.07.2000, the Suit had been subsequently transferred to the District Munsif
Court at Coimbatore and the Petition was pending all along without any orders of the Court.
A. Plaintiff''s objections:
(a) Initiative for arbitral process not taken by defendants.
The argument unfolds on the premise that Section 8(3) of the Arbitration and Conciliation Act allows for the commencement of arbitration
proceedings, its continuance and rendering of an arbitral award, notwithstanding an Application filed u/s 8(1). The petitioners ought to have taken
steps to have an Arbitrator appointed by resort to Clause 18 of the Partnership Deed and if there was no concurrence in the appointment of an
Arbitrator, they ought to have applied u/s 11 of the Act by an Application before the Chief Justice for appointment of an Arbitrator.
(b) The commencement of the dispute: Relevant period for computing limitation.
The learned Senior Counsel relied on Section 21 of the Arbitration and Conciliation Act to state that the arbitral proceedings in respect of a
particular dispute would commence on the date on which a request for the dispute to be referred to arbitration is received by the respondent. This
request must be read into the Application u/s 8(1) and if such a construction is made, it would mean that the cause of action had arisen on
13.07.2000 when the Petition had been filed. The petitioners are bound to have taken steps within 3 years for appointment of the Arbitrator by an
application of Rule under Article 137 of the Limitation Act, 1965. He cites (i) The The Kerala State Electricity Board, Trivandrum Vs. T.P.
Kunhaliumma, (ii) Major (Retd.) Inder Singh Rekhi Vs. Delhi Development Authority, (iii) The The Madras Metropolitan Water Supply and
Sewerage Board and Another Vs. Ramakrishna Reddy and Another, , in support of the plea that for Application for appointment of Arbitrator,
Article 137 Limitation Act is applicable. A Petition which the petitioners will be compelled to file u/s 11, in view of a priori decision of the plaintiff,
not to concur in the appointment of the Arbitrator, would be barred by limitation and therefore it would be futile to refer the parties to arbitration.
(c) Rejection of Suit for a failure of prospect of arbitral proceeding will be unjust.
If the Suit was to be dismissed by Application of Section 8 and if it is so happened that the Application u/s 11 before the Chief Justice is also
dismissed, according to the submissions of the counsel for the respondent, it would lead to an irreversible situation when the adjudication relating to
winding up of the partnership could not be undertaken at all.
B. The Pleas in support of arbitration:
(a) Proceeding u/s 8(3) optional
The counsel for the revision petitioners response to the arguments submitted by the Senior Counsel for the respondent is that reference u/s 8(3)
of the Arbitration Act making possible the continuance of proceedings before the Arbitral Tribunal, notwithstanding his Application u/s 8(1) before
the Civil Court ought not to be read as a mandate. His own Application before the Civil Court u/s 8(1) had been filed well within time, that is, even
before he filed the written statement and if the Court had for any reason not passed an order, the conduct of the Court ought not to prejudice the
cause of the litigant.
(b) Court''s duty to make reference is unexceptional
Reference u/s 8(1) is peremtory and he refers to the Supreme Court''s judgment in P. Anand Gajapathi Raju and Others Vs. P.V.G. Raju
(Died) and Others, where it held that it shall be obligatory for the Court to refer the parties to arbitration in terms of the arbitration agreement.
(c) Limitation is non-issue
The revision petitioners further contend if his Original Application were to be understood as a commencement of the cause of action and if it
were also to be assumed that the respondent would not concur in appointment of any Arbitrator, how the Chief Justice may pass an order u/s 11
of the Act when such a procedure is adopted, cannot be a matter for adjudication before the Court which is bound to make a reference u/s 8.
Even if such a consideration must enter into the ken of reasoning, Section 14 of the Limitation Act, according to the counsel for the petitioners,
ought to provide succor with the presumption of bona fides of prosecution of litigation by resort to an Application u/s 8 before the Civil Court and
that the time so taken shall be excluded for consideration of the Application u/s 11.
C. Section 8(1) & Section 20 operate in different fields:
On reading through the provisions of Sections 8 and 21 of the Arbitration and Conciliation Act, I am of the view that the provisions operate
under two distinct circumstances. An Application filed u/s 8 is not an Application that is contemplated u/s 21 at all. Section 8 is a petition before
the Court where a Suit is pending and where the Court is bound to pass an order. Section 21 contemplates that the arbitral proceeding in respect
of a particular dispute commences when a request for a reference is received by the respondent. If a Suit had not been filed at all, and if one of the
parties under the partnership deed had applied to the other partner for a reference to arbitration, that is when Section 21 will be attracted. If such a
demand is made and if the other party does not concur in the appointment of an Arbitrator, it would be necessary to apply u/s 11 within a period
of 3 years or if the Court refer the parties to arbitration, the starting point of limitation would begin when one party proposes an Arbitrator to the
other.
In the present case, if a Suit had been instituted by one of the partners without reference to the Arbitration Agreement, the Court was bound to
pass an order referring the parties to arbitration if there existed an arbitration clause. The duty of the Court is unexceptional. The mere fact that the
party could have also approached by request for an arbitration and for commencement of arbitral proceedings u/s 8(3) of the Act cannot be
understood as a necessary mandate that the party seeking for reference ought to have also taken steps u/s 8(3). It may be noted that Section 8(3)
contains expression that an arbitration may be commenced.
The Principles of Statutory Interpretation by Justice G.P. Singh, 10th Edition 2006 at page 431 states:
''may'' will not be construed as mandatory if such a construction would defeat the purpose of the Act or would lead to unjust results"" Chief
Settlement Commissioner (Rural) Punjab and Another Vs. Ram Singh and Others,
The expression ''may'' here has to be understood only as a mere option available for the purpose of seeking for arbitration, because Section
8(1), on the other hand, contains a mandate to the Court to refer the matter to arbitration if there existed an arbitral agreement. It may be that the
party may not concur in the arbitration that might necessitate the aggrieved party to resort to the Application u/s 11. When such an Application is
done, there would be no need to refer to Section 21 to ascertain when the dispute commenced, because as I have already pointed out Section 21
contemplates only a situation of the commencement of dispute in a case where a request is made to the party to refer to arbitration. A Petition u/s
8(1) is not a request to the party. If at all Section 21 must be applied, it must be applied and given its full expression only from the time when a
request is made subsequent to the order of the Court u/s 8(1) directing the parties to arbitration.
D. Proceeding u/s 8 by Civil Court and steps u/s 11 by Chief Justice are guided by independent considerations:
In view of the construction which I have made to Section 8 and Section 21, I do not think that it is necessary for me to enter a finding whether
the prosecution of the case before the Court could be treated as bona fide and whether the petitioners would be justified in invoking Section 14 at
a time when an application u/s 11 is to be filed. It would be wholly a matter within the jurisdiction of the learned Chief Justice, while deciding to
pass an order u/s 11, to consider all the relevant facts and circumstances it would be always open for the parties to raise the bar of limitation when
such a proceeding is taken. The Court dealing with the Petition u/s 8 shall do no more than see whether there exists an arbitral agreement and if
there is, refer the parties to resort to arbitration.
E. Act of Court shall prejudice no man:
The learned District Munsif or the Court before which the Petition u/s 8 was filed originally was bound to have passed necessary orders with
due alacrity. As the maxim goes: ''Actus curiae neminem gravabit''. There is whole wealth of case law in India through pronouncements of the
Supreme Court that approbate this maxim. The delay in passing orders u/s 8 ought not to result in a party losing his remedy through arbitral
process by a plea limitation attributable to Court''s delay. (Please see decision in B). West Bengal Essential Commodities Supply Corporation Vs.
Swadesh Agro Farming and Storage Pvt. Ltd. and Another, Kedarnath Vs. Mohan Lal Kesarwari and Others, . Drawing weighty consideration of
the maxim, the Supreme Court said in Gaya Prasad Vs. Sh. Pradeep Srivastava, ""the judicial tardiness for which our system has acquired,
notoriety causes the lis to creep through the line for long, long years from the start to the ultimate termini, is a malady afflicting the system. During
this long interval, many many events are bound to take place which might happen in relation to the parties as well as the subject matter of lis. If the
cause of action is to be submerged in such subsequent events on account of malady of the system, it shatters the confidence of the litigant, deposits
the impairment already caused.
I have no doubt that in the circumstances, the delay caused at the Court in disposing of the Application u/s 8(1) of the Act could not be put out
against a party seeking for reference to arbitration.
VII. Non-Filing of Original or Certified Copy of Arbitral Agreement:
The objections regarding the non-filing of the original or the certified copy of the arbitration agreement itself does not appear to be tenable and
the reliance on the decision of the Supreme Court reported in Atul Singh and Others Vs. Sunil Kumar Singh and Others, is not helpful. The
Supreme Court has dealt with the case where the arbitration agreement itself was denied and they found that no document had even been filed
along with the Suit. On the other hand, in the present case, the partnership deed which contains the arbitral agreement is relied on by the plaintiff
herself and it is that document which is the basis for the Suit.
The revision petitioners refer me to the fact that the partnership deed containing the arbitral agreement has been filed by the petitioners along
with the Application and the expression duly certified copy would include a certification made by the party that it is a true document. The counsel
for the revision petitioners refers me also to the following decisions reported in ITC Classic Finance Ltd. Vs. Grapco Mining and Co. Ltd. and
another, to the effect that non-filing of the original arbitral agreement is not fatal, even the arbitral agreement itself is not denied.
I have no hesitation in coming to the conclusion that in a case where the document containing an arbitration agreement is admitted and made
the basis of the suit itself, such a party cannot complain that there has been noncompliance of the requirement u/s 8(2). As stated above, the filing
of the copy certified by the party is adequate to satisfy the requirement of Section 8(2).
VIII. Final Disposition:
Under the circumstances, I find that the order of the Court below is erroneous and liable to be set aside. While allowing the Civil Revision Petition,
I direct that the dispute raised by the plaintiff in the Suit shall be referred to arbitration through an Arbitrator duly appointed in the manner known to
law. The Civil Revision Petition is allowed on the above terms, but, however, there shall be no direction to costs. Consequently, connected
Miscellaneous Petition is closed.